Senate Kills Rule On Class-Action Suits Against Financial Companies
Oct 26 2017
Many consumers must go through an arbitrator to resolve financial disputes, but the Consumer Financial Protection Bureau finalized a rule that bans most types of mandatory arbitration clauses.
"The rule targeted clauses that have been inserted into hundreds of thousands of contracts - covering products ranging from credit cards to payday loans - that require customers to waive the ability to sue companies in class action lawsuits", writes Barney Jopson for Financial Times. The petition bolsters recent survey findings from both progressive and conservative pollsters - as well as polls in Alaska, Arizona, Louisiana, Maine and OH - showing strong bipartisan support for protections from forced arbitration.
The CFPB rule, released in July, was aimed at giving consumers more power.
White House press secretary Sarah Huckabee Sanders said President Trump supported the move because "the rule would harm our community banks and credit unions by opening the door to frivolous lawsuits by special interest trial lawyers".
The Senate vote was "a giant setback for every consumer in this country", said the CFPB's Director Richard Cordray. The Hillreports that Republican Senators Lindsey Graham (S.C.) and John Kennedy (La.) voted with Democrats to keep the rule in place, but it was not enough.
The vote on the Senate floor was 50-50, so Mike Pence took over the presiding officer's chair and cast his tie-breaking vote which brought the total to 51-50 on the resolution of disapproval. Arbitration agreements have been effective before in preventing class action lawsuits.
Democrats, on the other hand, say that class-action lawsuits were more effective at holding big businesses accountable and offer a viable path for restitution when it comes to smaller claims. Had the rule taken effect, it would have prompted the filing of more than 3,000 new class-action lawsuits over the next five years, the report said.
The GOP opposition to the rule was supported by the Treasury Department, which released a report on Monday saying that the CFPB's arbitration rule would "impose extraordinary cost", imposing $500 million in additional legal fees that would largely go to plaintiffs' lawyers. "Forced arbitration hurts the 145 million Americans who had their personal data put at risk by Equifax". Wells Fargo, like other lenders, had customers sign mandatory arbitration agreements when they opened their initial accounts, and those agreements appeared to govern the subsequent disputes.
"By voting to take rights away from customers", he said, "the Senate voted tonight to side with Wells Fargo lobbyists over the people we serve". Sherrod Brown, D-Ohio.
Most people who geta share of class-action settlements get a pittance as their reward, Treasury added: on average, $32.35 per person. Consumers noticed that when they signed up for Equifax's monitoring services after the breach, the company originally had a forced arbitration clause in its contract.
But the broader point, Cordray said, was that 106 million class members benefited when companies agreed to change their practices as a result of class-action cases.